Question

In: Finance

Using the table of probabilities and returns for a stock mutual fund, what is the mutual...

Using the table of probabilities and returns for a stock mutual fund, what is the mutual fund's expected return?

State

Probability

Return

Depression

0.05

-20%

Recession

0.25

-5%

Normal

0.5

8%

Boom

0.2

30%

Multiple Choice

  • 9.15%

  • 10.25%

  • 7.75%

  • 8.00%

Solutions

Expert Solution

Expected return=Respective return*Respective probability

=(0.05*-20)+(0.25*-5)+(0.5*8)+(0.2*30)

which is equal to

=7.75%


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